Events

European markets show little reaction to French presidential results

European markets and the euro showed muted reaction to the expected outcome of the final round of the French presidential elections Sunday.

Emmanuel Macron is estimated to have won 66% of the final vote vs. Marine Le Pen's 34%. Mr. Macron will become the French president May 14.

The euro had weakened 0.65% against the dollar in European market trading Monday, and 0.33% against the pound sterling. European equities were down 0.57%, while French government bond yields were underperforming German bunds. “Given that (Mr.) Macron's election win was fully expected by markets, early price movements show a small degree of profit-taking,” said Darren Ruane, head of fixed interest at Investec Wealth & Investment, in a reaction statement.

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Money managers expect French and Italian government bond yield spreads to narrow further over German bunds in the coming days.

Hetal Mehta, Legal & General Investment Management European economist, said in a reaction statement: “The clearest market barometer of this risk has been in the excess spread of French government bond yields over equivalent maturity German government bond yields. That has retraced from 80 basis points prior to the first round back to between 20 to 40 basis points (the) range that has characterized the last three years.” She added it remains “appropriate to hedge European currency risk.”

Trevor Greetham, head of multiasset at Royal London Asset Management, said in a statement that Mr. Macron's victory “has been greeted with satisfaction, rather than euphoria by financial markets.”

Mr. Greetham said challenges remain for the upcoming “volatile summer months, with stock prices likely to dip on heightened geopolitical stress or signs that global growth is coming off the boil. We have lightened up our equity exposure in the multiasset funds we manage, with a view to buying back at lower prices, if markets do dip. Longer term, we see a continuation of the positive backdrop of recent years, with loose monetary policy and steady growth driving stock prices higher.”

Stephen Mitchell, head of strategy, global equities at Jupiter Asset Management, added: “Voters elected Emmanuel Macron for his pro-business policy proposals, which have the potential to unlock long held back investment and stimulate French markets.”

“Shares should react steadily — but to build on the recent rally (the market) needs to assess Macron's key appointments as he turns 'En Marche' from a movement into a party.”

France faces further votes, with parliamentary elections taking place June 11 and June 18. However, Mr. Greetham said these elections “don't carry the same near-term risks for financial markets as the presidential election.”